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Author's profile photo Ashish Sarkhel

Document Splitting in SAP S/4HANA Central Finance – Part 1

1. Introduction:

Document splitting is now a very established and mature solution from SAP. I wrote a blog post during the New GL implementation but I got a chance to work on Document Splitting extensively during my last few Central Fiance project. Typically customers encounter scenarios where the source system is SAP ECC without document splitting while Target SAP S/4HANA has mandatory document splitting. While there is an attempt and ideally we want all documents to go through the Standard Document splitting rule but practically there is a lot of incorrect postings done in the source system over multiple years.

Due to this incorrect posting, we see a huge spike in error post replication as these documents can not be adopted in the SAP S/4HANA system with standard split rules. e.g. SAP S/4HANA Split rule expect document type  KR to be a vendor line item and expense while someone in the source tweaked the document type KR to have a Cash GL also. When this document replicates through SLT it runs into an error in AIF as in the Target system Document type KR don’t have Cash GL as Item category.

There is always recommendation goes to customers to clean the source system data but practically it is not possible especially for historical posted documents. So one of the alternate solution SAP provide is BADI which can change Document Attribute post replication and just before post in SAP S/4HANA. While these BADI are very powerful and helpful to get replicated successfully but it can also create a huge problem in reconciliation if the Logic in BADI is not aligned with Target Document Splitting logic.

I have split this blog into two-part, in the first part, it is just an Overview of Document Splitting if the audience is not familiar with the concept, in the next part I will deep dive more into cFIN BADI and best practices for Document Splitting design.

Document Splitting Overview:

Earlier for generating Financial Statements below the company code level required manual effort and was usually done as month-end activity. With New GL, SAP provides a feature name Document Splitting, document splitting provide balance line value for given characteristics (e.g. Profit Center or Segment)

It is also required as Requirement of International Accounting Standards (IAS)

IAS mandate to provide financial Statements Segment wise as in report financial information by lines of business or geographic area.

For e.g. suppose there is a Vendor Invoice of USD 11000 for two purchases

The transaction is taxable (@10%)

GL Account Dr Cr Profit Center
Vendor 11000
  1. Pur. 1
8000 PC 1
  1. Pur. 2
2000 PC 2
Tax 1000

Now, this document is balanced at the Co Code level. But as Purchases belong to different profit centers PC1 and PC2, hence document is not balanced at the Profit Center level.

Now we have to find a base splitting logic to split vendor amount and tax for PC 1 and PC 2. Here it is observed that Purchases are in the ratio of 80% and 20% and also allocated for PC1 and PC 2

 

So Total Purchases is USD 10000i

For PC 1 = 80% of 10000 = USD 8000, For PC 2 = 20% of 10000 = USD 8000

Same as Tax can also be split

Total Tax amount is USD 1000

For PC 1 = 80% of 1000 = USD 800, For PC 2 = 20% of 1000 = USD 200

 

We can use the same ratio to split vendor amount and Tax amount.

GL item Amount Profit Center
Vendor USD 8000 PC 1
Vendor USD 2000 PC 2
Tax USD 800 PC 1
Tax USD 200 PC 2

 

So now the document will be posted as

GL Account Dr Cr Profit Center
Vendor 8800 PC 1
  1. Pur. 1
8000 PC 1
Tax 800 PC 1
GL Account Dr Cr Profit Center
Vendor 2200 PC 2
  1. Pur. 2
2000 PC 2
Tax 200 PC 2

Now both the documents are balanced at Co Code level also at Profit Center level. The document is balanced with specific characteristics also.

 

Screen1.JPG

 

 

Now with the above example, we can make two statements:

1.    Line items for Vendor and tax are split on the basis of Pre-Defined criteria

2.    The Pre-Defined criteria here is Purchase Amount

 

So splitting Accounting line items on the basis of Pre-Defined Criteria is Document Splitting

 

1.2. Example in SAP:

Now New GL does this activity automatically once configuration is done. For the user (Entry Ledger view) only a single entry is required, SAP will create a separate line item based on the pre-defined criteria (General Ledger View)

Here the example is based on splitting of Vendor amount based on Profit Center:

Screen2.jpg

Here Vendor 9001 got credited for expense for Postage and Purchased services

So Accounting Entry Would be:

GL Account Dr Cr Profit Center
Vendor (9001) 12000
Expense (Postage) 8000 1402
Expense (Purchased Services 4000 9990

Now as mentioned above the document is balanced on co code level but not at the Profit Center level

Now before Document Splitting:

Even if we look at general ledger view document is not balanced at profit center level

Screen3.jpg

 

After Document Splitting:

In case Document Splitting configured for Profit Center level then General Ledger view should be look like below:

Screen4.jpg

 

Now the document is balanced on both Co Code level and Profit Center level and the User needs not manually adjust this, SAP does it automatically as per configuration.

If we look at the accounting Entry:

GL Account Dr Cr Profit Center
Vendor (9001) 8000 1402
Expense (Postage) 8000 1402
Vendor (9001) 4000 9990
Expense (Purchased Services 4000 9990

2.    Type of Document Splitting:

Now Document Splitting can be divided into three parts:

 

2.1. Passive Split

Passive Split is used when SAP spilled a document line item based on the split that took place in the previous process (While Payment of Vendor, splitting will be done as the logic used in vendor invoicing)

For e.g. if a payment is made for an earlier discussion an example

            GL Account Dr Cr Profit Center
Vendor Amount 11000
Bank 11000

Now we know for Profit Center Level vendor Amount has been already split, so Bank Amount (Payment) will also split as same pre-defined criteria used for Vendor Invoicing

GL Account Dr Cr Profit Center
Vendor Amount 8800 PC 1
Vendor Amount 2200 PC 2
Bank 8800 PC 1
Bank 2200 PC 2

 

Now the clearing transaction is also balanced on profit Center level.

 

This SAP do automatically as per configuration (* the rule for Passive Splitting are already defined in the System and cannot be changed)

Example of Passive Splitting:

Now if we make a payment for an invoice created earlier

 

Accounting Entry:

GL accounting Amount Profit Center
Bank (Deutsche Bank) Cr 12000
To Vendor (9001) Dr 12000

 

Now from User Perspective (Entry View), it looks like normal payment:

Screen5.jpg

 

But if we look at the same document in General Ledger view

Screen6.jpg

 

SAP automatically split the payment as per the ratio of vendor invoice and this is an example of Passive Split.

 

2.2. Active Splitting

SAP split the line items of some pre-defined splitting rules.

In the above example vendor and tax, the amount is split according to expense (purchase) amount across profit center. SAP provides various standard Splitting rules for a various business transactions, if required customization can be done for new splitting rules.

Example for active splitting discussed earlier. (Under Basic Concept)

2.3. Splitting for Zero Balancing:

Zero balancing is taking care of document should be balanced also it should be balanced for specific characteristics (e.g. Profit Center)

Characteristics for which Zero Balancing is required can be defined

 

GL Account Dr Cr Profit Center
GL 1 1000 PC 1
GL 2 1000 PC 2

The document is balanced but not specific to the profit center. Hence an offsetting account is defined which is used to make document zero balancing for specific characteristics.

GL Account Dr Cr Profit Center
GL 1 1000 PC 1
GL 1 – Offsetting 1000 PC 1
GL 2 1000 PC 2
GL 2 – Offsetting 1000 PC 2

Example:

Screen7.jpg

Now, this is a normal FI document that is balanced for Co Code level but both balancing line item belongs to different Profit Center.

Now if we draw documents on profit center level, it is not balanced. Under Zero balancing account we configure an offset account which generates automatically line items to balance the document for specific characteristics (e.g. Here profit Center)

Screen8.jpg

 

Now in this example document is balanced from Co Code and Profit Center. As mentioned in the screenshot Account 194500 Clearing w/ BA 0000 is configured Offset GL account.

 

 

3.    Important Element of Document Splitting:

 

3.1. Splitting Rules

Splitting rules define which line item needs to be split and which logic needs to be used. For e.g. in the above example Vendor line item needs to be split with the Ratio of Expense items ( 80 % and 20%)

 

3.2. Item Categories

Item Category is grouping relevant GL account that needs to be split, it helps to assign the splitting rule to a complete set of GL rather than individual one. Item Categories are pre-defined in the system.

In order to manage easily, the system can apply the splitting rule for a Group of Expense Account instead of assigning individually. Item categories are pre-defined in the system.

Some of the Pre-defined Item categories are below:

Category Expense Account
3000 Vendor Account
2000 Customer
1000 Balance Sheet Account
4000 Cash Account
7000 Asset Account

 

3.3. Business Transaction and Variant

A business transaction is part of any business process. For in Procure to Pay process vendor invoice and vendor payment are Business Transaction. In SAP business transactions can have multiple variants (pre-defined settings).In Accounting Document Type is associated with Business Transaction and Business Transaction Variant

 

Category Expense Account
0200 Customer Invoice
0300 Vendor Invoice
0400 Bank Account Statement
1000 Payment
1010 Clearing Transaction

 

3.4. Splitting Method

It is a key element for Document splitting it actually defines all the major of splitting mention above. Example Business Transaction and variant for which splitting will take place.

 

4.    Implementation of Document Splitting:

Document Splitting needs to be activated in SAP.

But in order to activate Document Splitting following Configuration is required:

 

Screen9.JPG

 

4.1. Document Splitting Activation

SPRO Path: Financial Accounting (New) -> General Ledger Accounting (New) -> Business Transaction -> Document Splitting -> Activate Document Splitting

When Activation executed

Screen10.JPG

 

First Document Split Check Box needs to be marked and a pre-configured Document Splitting Method needs to choose.

Here it must be noted that Document Splitting activates on the client level but it can be deactivated by Co Code.

 

4.2. Document Splitting Method

Document Splitting Method actually Determine which Business Transaction and Variant will activate split and it is applicable for which GL accounts as base category and accounts which is to be split.

SPRO Path : Financial Accounting(New) -> General Ledger Accounting (New) -> Business Transaction -> Document Splitting -> Extended Document Splitting -> Define Document Splitting Method

The first Splitting Method is defined as an identifier

Screen11.jpg

 

For example, here we have chosen Method 0000000012 Follow Up Cost line. Next, this Method identifier is configured in Splitting Rule.

 

4.3. Document Splitting Rule

SPRO Path : Financial Accounting(New) -> General Ledger Accounting (New) -> Business Transaction -> Document Splitting -> Extended Document Splitting -> Define Document Splitting Rule

 

Screen12.jpg

 

In Splitting Rule first, it is defined that splitting method will be activated for which Business Transaction and variant.

 

Next, we need to define that this Business transaction will split which type of Account (e.g. Vendor, Customer, etc.)

Screen13.jpg

 

Splitting methods are pre-defined in SAP S/4HANA. In order to implement document splitting following elements need to be configured

 

In order to Activate Document Splitting, we need to Define Splitting Rules. But in order to have the correct rule, we need to first define a few important elements.

 

4.4. Assign Item Categories to GL account

All splitting rule is defined for item categories which are, in turn, define for a set of GL accounts

Screen14.jpg

 

Choose Chart of Account:

Screen15.jpg

 

Maintain Range of Account for Item Categories:

 

Screen16.jpg

Note that Categories are pre-defined in the system.

 

4.5. Classify Document Types

 

To bring relevant Business Transaction and variant for Document Splitting a Document Type need to be defined.

Screen23.jpg

 

Here for the given document Type Business Transaction and variant are defined:

Screen24.jpg

Screen26.jpg

 

Here we defined Vendor Invoice for Transaction 0300 and variant 0001

 

4.6. Define Zero Balance Account

As discussed above we have to configure a zero balance account

 

Screen25.jpg

4.7. Define Document Splitting Characteristics:

This is step is most critical, here we define document splitting will take place on which characteristics (e.g. Profit Center, Segment)

As it can be seen for our example we choose Profit Center.

 

Screen27.jpg

 

Screen28.jpg

Splitting Characteristics can also define for Controlling and Asset Accounting if required.

 

Screen29.jpg

 

In the Next Part, I will dig deeper into the Document Splitting issue during replication in SAP S/4HANA Central Finance and some best practices.

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